FSS delivers Grade 3 management evaluation to Woori Financial
South Korea’s top financial regulator has opened an investigation on MBK Partners, one of Asia's largest private equity firms, regarding the recent controversy associated with its portfolio company Homeplus, Korea’s second-largest hypermarket chain.
Financial Supervisory Service Gov. Lee Bok-hyun announced Wednesday that the watchdog is set to launch an inspection on the private equity giant on the same day.
“To look into multiple suspicions regarding the Homeplus incident, (the FSS) is to start an inspection on MBK Partners from today,” Lee said at a press briefing held at the regulator’s headquarters in Yeouido, western Seoul.
Homeplus, a portfolio company of MBK Partners, filed for corporate rehabilitation on March 4, citing a liquidity shortage. The retailer is accused of issuing asset-backed short-term bonds worth 82 billion won ($57 million) after a credit rating agency notified that its credit rating was likely to decline.
"The MBK inspection will be about figuring out when the private equity firm became aware of Homeplus' credit rating downgrade, and when it decided to file for corporate rehabilitation," Lee said. "But the inspection will not be limited to those subjects."
Lee further explained the FSS is to launch a task force under its deputy governor to look into the matter. It is the first time for the top regulator to inspect a private equity firm to look into a certain subject.
“Homeplus should show its sincerity to its partnering companies and investors to be perceived as trustworthy. From such perspective, it was disappointing that Kim Byung-joo, chairman of MBK which is the largest shareholder of the company, did not show up at yesterday’s meeting,” Lee said.
MBK's chief, Michael ByungJu Kim, failed to attend a parliamentary hearing on Tuesday that he was summoned to over Homeplus’ liquidity crisis.
Lee further highlighted the FSS delivered the results of management evaluation to Woori Financial Group, one of the top financial service providers here. Penalized for the lack of internal control, Woori Financial has been downgraded by a notch to Grade 3, following a loan scandal involving its top executives.
"Woori Financial was previously rated Grade 2. But even at the time, it was very near the Grade 3 bracket. The evaluation would have fallen to Grade 3 with even a minor deduction," Lee said.
Woori Financial, lagging behind its peers, has been striving to acquire Tongyang Life Insurance and ABL Life Insurance to level up its non-banking portfolio.
Under the supervisory provision for financial holding companies, a financial firm with a Grade 3 evaluation is unqualified to acquire a new affiliate. The Financial Services Commission, however, could approve the acquisition under the condition that Woori Financial improves its balance sheet, such as equity capital.
"The FSS is to deliver its view (on the acquisition) to the FSC within this month," Lee said.
silverstar@heraldcorp.com
